SPAI 10-K & 10-Q changes, risk factors and insider trading

An investment in our securities involves a high degree of risk. The risks described below include all the material risks to investors in this report that are known to our company. You should carefully consider such risks before participating in this report. Our business, financial condition and results of operations could be materially harmed by these risks. As a result, the trading price of our common stock could decline, and you might lose all or part of your investment. When determining whether to buy our common stock, you should also refer to the other information in this prospectus,Annual Report on Form 10-K, including our financial statements and the related notes included elsewhere in this prospectus.Annual Report on Form 10-K.

We incurred net losses for the in the years ended December 31, 2024,2025, and 2023,2024, we cannot assure you as to when, or if we will become profitable and generate positive cash flows.

ForWe the years ended December 31, 2024 and 2023, revenue has increased $1,251,458 or 126.4%. While the Company anticipates continuing this trend, we have no assurances this will continue. We have incurred significant net losses since our inception. For the years ended December 31, 2024,2025, and 2023,2024, we have incurred net losses of $7,428,461$14,322,779 and $6,314,649,$7,428,461, respectively. As of December 31, 2024,2025, we had an accumulated deficit of $14,250,751.$28,573,530. If our revenue grows more slowly than is currently anticipated, or if operating expenses are higher than expected, we may be unable to consistently achieve profitability, our financial condition will suffer, and the value of our common stock could decline. Even if we are successful in increasing our sales, we may incur losses in the foreseeable future as we continue to develop and market our products and services. If sales revenue from any of our current products or any additional products that we develop in the future is insufficient, or if our product development is delayed, we may be unable to achieve profitability and, in the event, we are unable to secure financing for prolonged periods of time, we may need to temporarily cease operations and, possibly, shut them down altogether. Furthermore, even if we can achieve profitability, we may be unable to sustain or increase such profitability on a quarterly or annual basis, which would adversely impact on our financial condition and significantly reduce the value of our common stock.

Growing and operating our business will require significant cash outlays, liquidity reserves and capital expenditures and commitments to respond to business challenges, including developing or enhancing new or existing products. As of December 31, 2024,2025, we had cash on hand of $1,970,719.$16,793,088. If cash on hand,hand cash generated from operations, and the net proceeds from our IPO areis not sufficient to meet our cash and liquidity needs, we may need to seek additional capital, potentially through debt or equity financing. To the extent that we raise additional capital through the sale of additional equity or convertible securities, your ownership interest may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, would result in increased fixed payment obligations and a portion of our operating cash flows, if any, being dedicated to the payment of principal and interest on such indebtedness. In addition, debt financing may involve agreements that include restrictive covenants that impose operating restrictions, such as restrictions on the incurrence of additional debt, the making of certain capital expenditures or the declaration of dividends. Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our products. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or considering specific strategic considerations. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or product candidate development programs or the commercialization of any product candidate or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, operating results and prospects and cause the price of the common stock to decline.

The development of our technologies and products, particularly for our AI based UXO detection software, is a costly, complex and time-consuming process, and the investment in product development often involves a long wait until a return, if any, is achieved on such an investment. We continue to make significant investments in research and development relating to our technologies and products. Investments in new technology and processes are inherently speculative. Technical obstacles and challenges we encounter in our research and development process may result in delays inin, or our abandonment ofof, product commercialization, substantially increase the costs of development and negatively negatively affect our results of operations.

We anticipate that a significant portion of our revenue to be derived from our ballistic protection products and a substantial percentage of our revenue to be derived from those product sales, at least in the near term, will come from U.S. Government and Government-related entities, including the U.S. Department of Defense and other departments and agencies. Government programs in which we may seek to participate,participate and contracts for tethered aerostats and drones or microwave radios, must compete with other programs for consideration during Congress’ budget and appropriations hearings, and may be affected by changes not only in political power and appointments but also general economic conditions and other factors beyond our control. A government closure based on a failure of Congress to agree on federal appropriations or the uncertainty surrounding a continuing resolution may result in termination or delay of federal funding opportunities we are pursuing. Reductions, extensions, or terminations in a program in which we are seeking to participate, or overall defense or other spending could adversely affect our ability to generate revenues and realize any profits. We cannot predict whether potential changes in security, defense, communications, and intelligence priorities will afford opportunities for our business in terms of research and development or product contracts, but any reduction in government spending on such programs could negatively impact our ability to generate revenues. In addition, our ability to participate in U.S. Government programs may be affected by the adoption of new laws or regulations relating to government contracting or changes in existing laws or regulations, changes in political or public support for security and defense programs, and uncertainties associated with the current global threat environment and other geo-political matters.

International sales of certain of our products, including our ballistic protection equipment and AI products, may be subject to U.S. laws, regulations and policies like the International Traffic in Arms Regulations (“ITAR”) and other export laws and regulations and may be subject to first obtaining licenses, clearances or authorizations from various regulatory entities. If we are not allowed to export our products or the clearance process is burdensome, our ability to generate revenue would be adversely affected. The failure to comply with any of these regulations could adversely affect our ability to conduct our business and generate revenues, as well as increase our operating costs. Members of management are registered with the Defense Trade Controls Compliance (“DTCC”) program with the United States Department of State and maintainsmaintain relations with additional subject matter experts on the topic of ITAR and international export controls. Currently, our sales do not require us to be registered with the DTCC, but sales of future products may require registrationsuch withregistration. DTCC.If If in the future we are required to have personnel registered with the DTCC for new business opportunities, and if we lose such personnel, we will be unable to pursue such new business.

At the end of the period December 31, 2024,2025, our certifying officers concluded that the Company’s disclosure controls and procedures were not effective. We believe our disclosure controls and procedures were and remain not effective due to; (i) a lack of; segregation of duties within accounting functions and formalized accounting functions,procedures. (ii) need for the establishment of an integrated accounting and manufacturing inventory ERP cloud-based software, in order to effectively track the movement of our inventory and add a layer of internal control for transaction approvals. Should we not remedy our internal control over financial reporting or disclosure controls and procedures, there may be errors in our financial statements that could require a restatement, or our filings may not be timely made with the SEC. We havecontinue implementedto implement additional policies and procedures to remedy our effectiveness and havecontinue activelyto started pursuing upgrading upgrade our accounting software, however,as until wewell raiseas, sufficientseeking capitaladditional resources,staff. We have engaged third parties to investassist in accountingthe softwaredocumentation of our corporate policies and addto further address our personnel forneeds. We expect to have remedied the segregationeffectiveness of duties, we may not achieve our desiredcontrols objectives.and procedures during the second quarter of 2026. Moreover, no control environment, no matter how well designed and operated, can prevent or detect all errors or fraud. We may identify material weaknesses and control deficiencies in our internal control over financial reporting in the future that may require remediation and could lead investors to lose confidence in our reported financial information, which could lead to a decline in our stock price.

We will likelymay need to raise additional capital in the future. Additional capital may not be available to us on reasonable terms, if at all, when or as we require. If we issue additional shares of our common stock or other securities that may be convertible into, or exercisable or exchangeable for, our common stock, our existing stockholders will experience further dilution and could trigger anti-dilution provisions in outstanding warrants.

We will likelymay need to raise additional capital in the future. Future financing may involve the issuance of debt, equity and/or securities convertible convertible into or exercisable or exchangeable for our equity securities. These financings may not be available to us on reasonable terms or at all when and as we require funding. If we are able to consummate such financings, the trading price of our common stock could be adversely affected and/or the terms of such financings may adversely affect the interests of our existing stockholders. Any failure to obtain additional working capital when required would have a material adverse effect on our business and financial condition and may result in a decline in our stock price. Any issuances of our common stock, preferred stock, or securities such as warrants or notes that are convertible into, exercisable or exchangeable for, our capital stock, would have a dilutive effect on the voting and economic interest of our existing stockholders.

Our certificate of incorporation provide that we possess and may exercise all powers of indemnification of our officers, directors, employees, agents and other persons and our bylaws also require us to indemnify our officers and directors as permitted under the provisions of the Delaware General Corporation Law (“DGCL”). We also have contractual indemnification obligations under our agreements with our directors and officers. The foregoing indemnification obligations could result in our company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers. These provisions and resultant costs may also discourage our company from bringing a lawsuit against directors, officers, and employees for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our stockholders against our directors, officers, and employees even though such actions, if successful, might otherwise benefit our company and stockholders. InDuring November of 2023,2025, the Company obtained D&O liability insurance with for an aggregate liability of $2,000,000, which has a term of one year, which the Company which was renewed tilluntil August of 2025.2026.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes thereto included elsewhere in this prospectus.Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included elsewhere in this prospectus.Annual Report on Form 10-K.

We were incorporated in the State of Delaware on December 15, 2021. Safe Pro Group Inc. is the parent company of Airborne Response Corp. and Safe-Pro USA LLC, which were both incorporated in Florida, in 2016 and 2008, respectively. On March 9, 2023, Safe Pro Group Inc. acquired Demining Development LLC, a privately held developer of Artificial Intelligence (“AI”) and Machine Learning (“ML”) software technology for processing of drone-based imagery and data. On August 30, 2023, Demining Development LLC filed an amended and restated Articles of Organization to change its name to Safe Pro AI LLC. WeOn areDecember 23, 2025, we formed SPAI Ventures LLC. Currently, SPAI Ventures is a companynon-active focusedwholly onowned innovativesubsidiary, securitythat was established to pursue both strategic collaborations and protectioninvestments with solutions,Ukrainian specifically,and advancedother artificialinternational intelligencetech /developers. machineThrough learningSPAI (AI/ML)Ventures, softwareSafe technologyPro forGroup, will evaluate opportunities in which to invest or to commercialize technologies that it believes could complement the creationcapabilities of robustits datasets sourced from the analysisportfolio of aerial imagery, bulletAI and blastballistic resistantprotective personalsolutions. SPAI protectionVentures equipmenthas andnot providingmade mission-critical aerialany managedinvestments services.or entered into any agreements.

Our consolidated financial statements included in this prospectusAnnual Report on Form 10-K include our accounts and those of our active operating subsidiaries: Airborne Response Corp., Safe-Pro USA LLC, and Safe Pro AI LLC from their respective dates of acquisition. Not included in this Annual Report on Form 10-K, SPAI Ventures LLC, which is currently a non-operating subsidiary of the company.

The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the chief executive officer of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. During the year ended December 31, 20242025 and 2023,2024, the Company operated in three active reportable business business segments which consisted of (1) the business of Safe-Pro USA, (2) the business of Airborne Response, and (3) the business of Safe Pro AI. The Company’s reportable segments are strategic business units that offer different products. They are managed separately based based on the fundamental differences in their operations and locations.

Revenues. Our revenues are generated primarily from the sale of our products,products and services, which consist primarily of personal protective gear (“PPE”) and ballistic protective equipment including Explosive Ordnance Disposal (“EOD”) and blast and fragmentation resistant vests and body armor, as well as aerial managed services (drones) for the inspection of customer’s critical infrastructure including including radio towers and power grids. At contract inception, we assess the goods and services promised in the contract with customers and identify a performance obligation for each. To determine the performance obligation, we consider all products and services promised in the contract regardless of whether they are explicitly stated or implied by customary business practices. The timing of satisfaction of the performance obligation is not subject to significant judgment. We measure revenue as the amount of consideration expected to be received in exchange for transferring goods and services. We generally recognize product revenues at the time of shipment, provided that all other revenue recognition criteria have been met.

Selling, General and Administrative expenses consist of expenses associated with our training programs, trade shows, marketing programs, promotional materials, demonstration equipment, commissions payable, national and local regulatory approvals of our products, travel, entertainment, recruiting, operating supplies such as, computer equipment, drones, EOD testing supplies; and facilities and other supporting overhead costs. For the year ending December 31, 2024,2026, we expect selling, general and administrative expenses to increase, as we ramp up our sales and marketing expansion efforts to correspond with our increased production efforts, relating to our personal protective gear, the availability of additional AI-powered image processing solutions and new drone-based services such as Drone as a Responder (DFR).

Net Revenue. For twothe years ended December 31, 20242025 and 2023,2024, revenues generated were $2,169,178$606,681 and $917,720,$2,169,178, ana increasedecrease of $1,251,458 $1,562,497 or 136.4%. 72.0%. Comparable sales for Airborne Response increaseddecreased $985,598,$1,089,363, or 333.8%,85.0%, from $295,265$1,280,863 to $1,280,863.$191,500. Comparable sales for Safe-Pro USA USAdecreased increased $250,819,$532,498, or 40.3%,61.0%, from $622,455$873,274 to $873,274.$340,776. Comparable sales for Safe Pro AI increased $15,041,$59,364, or 100.0%,394.7%, from $0 to$15,041 $15,041. The increase in revenue was attributable to; an increase in arial imaging services due to inclement weather and an increase in revenue generated for military grade bomb suits and law enforcement safety products.$74,405.

Cost of Sales. During the years ended December 31, 20242025 and 2023,2024, the cost of revenues increaseddecreased to $1,263,032$404,503 compared to $606,639.$1,263,032. For the years ended December 31, 20242025 and 2023,2024, gross profit margins were 41.8%33.3% and 33.9%41.8% respectively. The increasedecrease in margin was attributable to thea increaseshift in salesproduct forand aerialservice imagingmix services,toward which have a higherlower gross profit margin,margin as compared to our manufactured products. We expect our cost of revenues to continue to increase during fiscal 2025products and beyond, as we expand our operations and begin generating additional revenues under our current business. However, we are unable at this time to estimate the amount of the expected increases.services.

Salaries, wages and payroll taxes were $2,263,233$2,712,929 and $1,324,386$2,263,223 for the years ended December 31, 20242025 and 2023,2024, respectively, an increase of $938,837,$449,705 or 70.9%.19.9%. The increases were primarily attributable to theadditional increasescompensation expense related to employment agreements and incentive bonuses associated with current-year equity issuances, partially offset by a reduction in personnelofficer wages incurred pursuant to accommodatethe terms of employment agreements with the company’sChief expansion,Executive in preparation for the Company’s initial public offering and certain contingencies in officers’ employment contracts, which were triggered at the time of the initial public offering.Officer.

Stock based compensation for wages were $2,015,178$2,826,396 and $979,000,$2,015,178, for the years ended December 31, 20242025 and 2023,2024, respectively, an increase of $1,036,178,$811,218, or 105.8%.40.3%. The increase was due to certain contingencies in officers’ employment contracts,contracts whichand wereoptions triggeredgranted for at the timeyear ofended theDecember IPO.31, 2025.

Research and Development expenses were $90,372$394,207 and $373,655$90,372 for the years ended December 31, 20242025 and 2023,2024, respectively, aan decreaseincrease of $283,283$303,835 or 75.8%.336.2%. The decreaseincrease is primarily attributable to expanded development efforts and the capitalizationengagement of $372,588external forcontractors internalto usesupport enhancements software development forto the yearartificial endingintelligence December 31, 2024, as the asset was put into service on July 1, 2024 and all charges prior to that were expensed accordingly.business.

Selling,Professional generalfees were $1,466,739 and administrative expenses were $1,254,772 and $449,874$1,083,091 for the years ended December 31, 20242025 and 2023,2024, respectively, an increase of $804,898$383,648 or 178.9%.35.4%. The increases increasefor isthe year ended December 31, 2025 as compared to 2024, were attributable to travel,additional insurancepublic company expenses including legal and investor relations fees, and additional director fees, related costs,to employeethe benefitsprior andyear, marketing.consisting of four months of fees versus a full year in 2025.

DepreciationSelling, general and amortizationadministrative expenses were $272,705$2,131,056 and $182,156$1,254,772 for the years ended December 31, 20242025 and 2023,2024, respectively, an increase of $90,549, $876,284 or 49.7%.69.8%. The increase is primarily attributable to amortizationincreases relatedin toD&O assetsinsurance putpremiums, intocontractor service on July 1, 2024fees and thetravel accelerated amortization of an employment agreement balance for a cancelled agreement in Airborne Response due to a new agreement in the Company’s parent which became effective at time of the initial public offering.fees.

TotalDepreciation Otherand (Income) Expense. Our total otheramortization expenses were $276,460$304,803 comparedand to$272,705 $7,719 duringfor the years ended December 31, 20242025 and 2023 2024, respectively, an increase of $268,741 $32,098, or 3,481.6%.11.8%. The increase is primarily attributedattributable to interest expense of $306,516amortization related to convertible debtassets put into service in 2024, as compared to interest expense of $8,227, from the sameprior period in 2023, and offset by an increase of interest income of $29,548.year.

Our current assets at December 31, 20242025 increased by $1,476,221,$15,178,317, or 115.9%,551.9%, to $2,750,129$17,928,446 from $1,273,908,$2,750,129 fromat December 31, 2023.2024. The increase included an increase in cash of $1,267,351$14,822,369, inventory of $272,963, and prepaid expenses and other current assets of $265,611,$106,643. These are partially offset by a decreasedecreases in accounts receivable of $39,643$23,658. The increase in cash is primarily a result of the proceeds from the private placements and inventorywarrant ofexercises $17,098.in 2025.

Our current liabilities at December 31, 20242025 decreasedincreased to $893,925$1,250,844 from $1,416,729$893,926 or aan decreaseincrease of $522,804,$356,918, or 36.9%39.9% from December 31, 2023.2024. The decreaseincrease is comprised of decreasesincreases in; convertible notes payable, net of discount of $343,796, accrued compensation and benefits of $88,102, accounts payable of $49,269,$341,494, accrued expenses of $51,396,$180,668, contractdue liabilitiesto related parties of $15,739, $902,partially offset by decreases in current portion of lease liabilities of $5,407,$7,955, offsetaccrued bycompensation anof increase$108,157 inand contract liabilities of $64,871. Accounts payable and accrued expenses increased primarily due to relatedhigher partiesyear-end of $16,069, which is representative ofobligations related partyto accruedcontractor fees, wages.professional fees including those related to the treasury stock repurchases, and insurance accruals.

Net cash flows used in operating activities for the year ended December 31, 20232025 amounted to $2,003,878$6,216,366 and were primarily attributable to our net loss of $6,314,649,$14,322,779 offset by depreciation and amortization expense of $239,009,$381,330, impairment of goodwill of $684,867, impairment of other intangibles of $146,001, and stock-based compensation and professional fees of $3,616,700, amortization of debt discount of $1,454, contributed services of $210,000 and lease costs of $1,877.$6,907,105. Changes in operating assets and liabilities were reflected by increases in accounts receivable of $61,152,$23,658, accounts payable of $118,038,$278,869, contractaccrued liabilitiesexpenses of $180,668 and lease liability of $40,692,$11; offset by decreases in, accrued compensation of $69,041; and decreases in$51,619, inventory of $5,083,$272,963, prepaid and other current assets of $88,052 $106,643, and accrued expensescontract liabilities of $18,023.$64,871.

Net cash flows used in investing activities were $436,389$241,353 and $30,172$436,389 for the years ended December 31, 20242025 and 2023,2024, respectively. For the year ended December 31, 2025, we purchased property and equipment for $48,808 and made investments in intangible technologies of $192,545. For the year ended December 31, 2024, we purchased property and equipment for $63,801 and investmentmade investments in intangible technologies of $375,588. For the year ended December 31, 2023, we purchased property and equipment for $30,172.$372,588.

NetDuring cash flows provided by financing activities were $5,799,174 and $985,152 for the years ended December 31, 2024 and 2023, respectively. During the year ended December 31, 2024,2025, we had proceeds from the sale of our common stock offeringin private placement offerings of $4,179,500, $12,945,000, proceeds from the exercise of warrants of $878,708, from the salesales of common stock and warrants in private placement offerings of $489,002,$6,767,500, proceeds from the saleexercise of warrants of convertible notes payable of $275,002,$1,511,570, proceeds from the sale of notesPreferred payableSeries C shares and warrants of $236,500,$1,050,000, proceeds from exercise of options of $12,750, and proceeds from related party advances of $141,866 and partially offset by repaymentspayments for employee tax withholdings on net share settlement of notes payable of $236,500, and repayment of due to$465,601, related party repayments of $23,038.$69,588, and purchases of treasury stock in connection with our Stock Repurchase Program of $613,409.

During the year ended December 31, 2023,2024, we had proceeds from the sale of our common stock offering of $4,179,500, proceeds from the exercise of warrants of $878,708, proceeds from the sale of common stock and warrants of $1,005,249,$489,002, proceeds from the sale of convertible notes convertiblepayable of $275,002, proceeds from the sale of notes payable of $475,000, proceeds from related party advances of $298,361,$236,500, offset by repayments of notes payable of $236,500, and repayment of due to related party for $793,458.of $23,038.

In NovemberDecember 2023, the FASB issued ASU No. 2023-072023-09, –Income “Segment ReportingTaxes (ASCTopic 280740): Improvements to ReportableIncome SegmentTax Disclosures”,Disclosures. This ASU requires whichdisclosure enablesof investorsspecific categories in the rate reconciliation and additional information for reconciling items that meet a quantitative threshold. The amendment also includes other changes to betterimprove understandthe aneffectiveness entity’sof overallincome performancetax anddisclosures, assessincluding potentialfurther futuredisaggregation of cashincome flowstaxes throughpaid improved reportablefor segment disclosure requirements. The amendments enhance disclosures aboutindividually significant segmentjurisdictions. expenses, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements.This ASU 2023-07 is effective for annual periods beginning after December 15, 2023. 2024. The Company adopted ASU No. 2023-072023-09 on December 31, 2024.2025. The adoption of the standard did not result in any significant disclosure disclosure changes in the Notes to the Consolidated Financial Statements.

Safe-Pro USA recognizes revenue when, or as, the performance obligation is satisfied. Performance obligations are determined through a review of customer contracts and may differ between customers depending upon contract termsterms. Revenue from product sales is recognized when the related goods are shipped whereas revenue from training and inspection activities is recognized when the services are completed, and payment is probable. Discounts in multiple elements sold as a single arrangement are allocated proportionately to the individual elements based on the fair value charged when the element is sold separately.

Safe Pro AI will primarily sell subscriptions and licenses to its customers for the use of its software under a software-as-a-service subscription model (“SaaS”), which will allow for the rapid, automated processing of aerial and ground-based imagery uploaded by customers, customers, making it an ideal solution for a number of applications including defense, demining, in law enforcement and border security. In the security.case of NODE, the combined solution includes specialized, commercially available hardware integrated with Safe Pro AI’s proprietary software. Safe Pro AI’s, SaaS offerings are sold under a license or prepaid or postpaid, usage-based pricing system pursuant to to a tiers model, allowing customers to choose the subscription level to be charged based upon their intended usage. The subscription tiers will utilize declining prices as the volume grows. Under this model, customers are charged an upfront fee based upon the number of gigapixels of aerial images uploaded into the system for processing. For customer convenience, Safe Pro AI will initially charge data processing fees on a per hectare basis (1 hectare = 1,000 square meters). Under prepaid pay-as-you-go plans, revenues related to contracts that do not include a specified contract period are recognized upon usage by the customer and satisfaction of the Company’s performance obligation. These usage-based revenues are constrained to the amount the Company expects to be entitled to and receive in exchange for providing access to its platform. If professional services are deemed to be distinct, revenue is recognized as services are performed. The Company does not view the signing of the contract or the provision of initial setup services as discrete earnings events that are distinct.

The Company evaluates acquisitions pursuant to ASC 805, “Business Combinations,” to determine whether the acquisition should be classified as either an asset acquisition or a business combination. Acquisitions for which substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset or a group of similar identifiable assets are accounted for as an asset acquisition. For acquisitionsacquisition of an asset or a group of assets that does not constitute a business, the Company applies ASC 805-50 which provides guidance on acquisitions of assets rather than a business. Acquisitions of assets are accounted for using the cost accumulation and allocation model. For asset acquisitions, the Company allocates the purchase price of these acquired assets on a relative fair value basis and capitalizes direct acquisition related costs as part of the purchase price. Acquisition costs that do not meet the criteria to be capitalized are expensed as incurred and presented in general and administrative costs in the consolidated statements of operations, if any.

We were incorporated in the State of Delaware on December 15, 2021. Safe Pro Group Inc. is the parent company of Airborne Response Corp. and Safe-Pro USA, LLC, which were both incorporated in Florida, in 2016 and 2008, respectively. On March 9, 2023, Safe Pro Group Inc. acquired Safe Pro AI LLC (formerly known as Demining Development LLC), a privately held developer of Artificial Intelligence (“AI”) and Machine Learning (“ML”) software technology for processing of drone-based imagery and data. On December 23, 2025, we formed SPAI Ventures LLC. Currently, SPAI Ventures is a non-active wholly owned subsidiary, that was established to pursue both strategic collaborations and investments with Ukrainian and other international tech developers. Through SPAI Ventures, Safe Pro Group,Group will evaluate opportunities in which to invest or to commercialize technologies that it believes could complement the capabilities of its portfolio of AI and ballistic protective solutions. SPAI Ventures has not made any investments or entered into any agreements.

During the three months ended MarchJune 31,30, 2026, the Company purchased approximately 79.4%91.6% of its inventory from twothree suppliers (Supplier A 67.9%,53.1%, Supplier B 21.2%, and Supplier BC 11.5%.17.2%). During the threesix months ended MarchJune 31,30, 2025,2026, the Company purchased approximately 88.9%85.0% of its inventory from fourthree suppliers (Supplier CA 10.0%,38.3%, Supplier B 42.0%, Supplier D 15.3%34.2%, and Supplier E 21.7%C 12.5%).

The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the chief executive officer of the Company, who reviews operating results to make decisions about allocating resources and assessing performance forof the entireCompany’s Company.reportable Duringsegments. the three months ended March 31, 2026 and 2025, theThe Company operatedoperates in three reportable business segments which consistedconsisting of (1) the business of Safe-Pro USA, (2) the business of Airborne Response, and (3) the business of Safe Pro AI. The Company’s reportable segments are strategic business units that offer differentdistinct products.products Theyand services and are managed separately based on the fundamentalnature differences inof their operations and locations.operations.

Comparison of the Three Monthsmonths Ended MarchJune 31,30, 2026 and 2025

For the Three Months Ended MarchJune 31,30, 2026 and 2025:

Cost of Revenue. During the three months ended MarchJune 31,30, 2026 and 2025, cost of revenues increased to $389,700$479,262 compared to $123,236,$61,196, an an increase of $266,464,$418,066, or 216.2%.683.2%. Gross profit margins were 68.1%64.0% and 33.3%,34.0%, respectively. TheDuring increasethe insix months ended June 30, 2026 and 2025, cost of revenuerevenues is attributablewere to significantly higher sales that occurred during the first quarter of 2026$868,962 compared to the first quarter of 2025. For the three months ended March 31, 2026 and 2025, gross profit margins for Safe-Pro USA were 50.2% and 25.9%, respectively. Gross profit margins for Airborne Response were 43.6% and (76.0)%, respectively.$184,432. Gross profit margins for Safe Pro AI were 72.1% and 70.9%, respectively. The increase in margin was attributable to improved absorption of fixed costs,66.0% and a33.6%, favorable mix of higher-margin product and AI-driven revenue during the current period.respectively.

Operating Expenses. Total operating expenses for the three months ended MarchJune 31,30, 2026 and 2025 were $3,747,818$4,124,383 and $4,067,256,$1,954,903, aan decreaseincrease of $319,438$2,169,480 or 7.9%.111.0%. Total operating expenses for the six months ended June 30, 2026 and 2025 were $7,872,201 and $6,022,159, an increase of $1,850,042 or 30.7%. Factors resulting in the decreaseincrease are described more fully below.

Salaries, wages and payroll taxes. Total salaries, wages and payroll taxes for the three months ended MarchJune 31,30, 2026 and 2025 were $1,650,663$2,222,179 and $2,024,543,$434,470, aan decreaseincrease of $373,880$1,787,709 or 18.5%.411.5%. Total salaries, wages and payroll taxes for the six months ended June 30, 2026 and 2025 were $3,872,842 and $2,459,013, an increase of $1,413,829 or 57.5%. The decreasesincreases for six months ended June 30, 2026 as compared to the same period in 2025 were primarily attributable to aincreased decreasesalaries, inwages non-cashand stockpayroll basedtaxes compensation of $637,966, partially offset by increased cash compensation$1,206,222 associated with personnel additions and operational growth.growth, as well as an increase in non-cash stock-based compensation of $207,607.

Research and DevelopmentDevelopment. expensesTotal were $360,397research and $0,development expenses for the three months ended MarchJune 31,30, 2026 and 2025,2025 were $192,435 and $17,875, respectively, an increase of $174,560 or 976.6%. Total research and development expenses for the six months ended June 30, 2026 and 2025 were $552,832 and $17,875, respectively, an increase of $360,397 $534,957 or 100.0%.2992.8%. The increaseincreases for six months ended June 30, 2026 as compared to the same period in 2025 is primarily attributable to expanded development efforts and the engagement of external contractors to support enhancements to the artificial intelligence business.

Professional fees were $922,257$929,083 and $1,602,148$1,041,362 for the three months ended MarchJune 31,30, 2026 and 2025, respectively, a decrease of $679,891$112,279 or 42.4%.10.8%. Professional fees were $1,851,340 and $2,643,510 for the six months ended June 30, 2026 and 2025, respectively, a decrease of $792,170 or 30.0%. The decreases for six months ended June 30, 2026 as compared to the same period in 2025 are related to a decrease in non-cash expenses for share-based compensation of $805,851,$1,119,147, partially offset by increases in director fees, accounting fees, investor relations and public company expense of $125,960.$326,977.

Selling, general and administrative expenses were $758,610$716,516 and $355,863$370,796 for the three months ended MarchJune 31,30, 2026 and 2025, respectively, an increase of $345,720 or 93.2%. Selling, general and administrative expenses were $1,475,126 and $726,660 for the six months ended June 30, 2026 and 2025, respectively, an increase of $402,747$748,466 or 113.2%.103.0%. The increases for six months ended June, 2026 as compared to the same period in 2025 are attributable to increases in D&O insurance expense, travel and contractor fees.

Depreciation and amortization expenses were $55,891$64,170 and $84,702$90,400 for the three months ended MarchJune 31,30, 2026 and 2025, respectively, a decrease of of $28,811,$26,230, or 34.0%.29.0%. Depreciation and amortization expenses were $120,061 and $175,101 for the six months ended June 30, 2026 and 2025, respectively, a decrease of $55,040, or 31.4%. The decrease was related to amortization of certain finite lived intangible asset technologies, which were fully impaired amortized prior to the beginning of the current period, offset by amortization of newly capitalized technologies.

Total Other IncomeIncome, Net. Our total other income, net was $102,709 compared to $8,787, during the three months ended June 30, 2026 and 2025 respectively, an increase of $93,922 or 1068.9%. Our total other income was $123,904$226,613 compared to $40,673,$49,460, during the threesix months ended June March 31,30, 2026 and 2025 respectively, an increase of $83,231$177,153 or 204.6%.358.2%. The increase was primarily attributable to higher interest income earned on increased cash balances during the period.

Net Loss. We recorded a net loss of $2,793,485$3,168,862 for the three months ended MarchJune 31,30, 2026 as compared to a net loss of $3,965,017,$1,914,559, for the three months ended MarchJune 31,30, 2025. We recorded a net loss of $5,962,347 for the six months ended June 30, 2026 as compared to a net loss of $5,879,576 for the six months ended June 30, 2025. The decreaseincrease is a result of the factors as described above.

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At MarchJune 31,30, 2026, we had a cash balance of $14,802,060$10,230,514 and working capital of $14,394,175.$10,965,737. The Company has the funds to support its planned operations, for a minimum of the next twelve months.

Our current assets at MarchJune 31,30, 2026 decreased by $2,361,640,$5,550,022, or 13.2%,31.0%, to $15,566,806$12,378,424 from $17,928,446, from December 31, 2025. The decreases included cash of $1,991,028, accounts receivable of $38,305, inventory of $161,209$6,562,574, and prepaid expenses and other current assets of $171,098.$280,138, partially offset by increases to accounts receivable of $1,150,262, and inventory of $142,428.

Our current liabilities at MarchJune 31,30, 2026 decreasedincreased to $1,172,631$1,412,687 from $1,250,844 or aan decreaseincrease of $78,213,$161,843, or 6.3%12.9% from December 31, 2025. The decreaseincrease is comprised of decreases in accrued expenses of $71,009,$48,178, due to related parties of $272,$4,830, and current portion of lease liabilities liabilities of $18,606,$38,679, partially offset by increases in accounts payable of $2,341,$68,658, and contract liabilities of $9,333.$184,872.

Net cash flows used in operating activities for the threesix months ended MarchJune 31,30, 2026 amounted to $1,177,977$4,055,774 and were primarily attributable attributable to our net loss of $2,793,485,$5,962,347, offset by depreciation and amortization expense of $78,822$167,768 and stock-based compensation and professional fees of $1,225,520.$2,546,226. Changes in operating assets and liabilities wereincluded reflected by decreasesincreases in; accounts receivable and other receivables of $38,305, inventory of $161,209,$1,150,262 and inventory of $142,428, and decreases in accrued expenses of $48,178 and lease liabilities of $221. These uses of cash were partially offset by increases in accounts payable of $68,658 and contract liabilities of $184,872, and a decrease in prepaid expenses and other current assets of $171,098, as well as increases in accounts payable of $2,341 and contract liabilities of $9,333; and partially offset by decreases in lease liabilities $111, and accrued expenses of $71,009.$280,138.

Net cash flows used in operating activities for the threesix months ended MarchJune 31,30, 2025 amounted to $941,751$1,984,809 and were primarily attributable attributable to our net loss of $3,965,017,$5,879,576, offset by depreciation and amortization expense of $103,366$213,309 and stock-based compensation and professional fees of $2,669,337.$3,457,764. Changes in operating assets and liabilities were reflected byincluded increases in; inventory of $28,344, prepaid and other current assets of $69,731, accounts payable of $106,247,$48,881 and accountsaccrued receivableexpenses of $107,901;$71,357, andpartially offset by decreases in accounts receivable of $85,127, inventory of $35,773, prepaid expenses and other current assets of $132,269, decreases in accrued expensescompensation of $111,279, decreases in contract liabilities of $4,601,$38,367, and decreases in lease liabilities $33 and contract liabilities of $57,026.$67.

Net cash flows used in investing activities were $81,700$171,836 and $123,359,$225,877 for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. During During the threesix months ended MarchJune 31,30, 2026, we purchased property and equipment of $48,200$108,336 and investment in intangible technologies of $33,500. $63,500. During the threesix months ended MarchJune 31,30, 2025, we purchased property and equipment of $18,247$21,034 and investment in intangible technologies of $105,112. $204,843.

Net cash flows (used in) provided by financing activities were $(731,3512,334,964) and $6,610$1,045,563 for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. During the three months ended March 31, 2026, we had purchases of treasury stock of $731,079 and repayments to a related party of $6,206, partially offset by related party advances of $5,934.

During the threesix months ended MarchJune 31,30, 2025,2026, we had purchases of Treasury Stock of $2,330,134 and repayments to a related party advances of $15,816 $14,390, partially offset by related party repaymentsadvances of $9,206.$9,560.

IntangiblesIntangible assets, net consists of contractual employment agreements, customer relationships and acquired capitalized internal-use software. All intangible assets determined to have finite lives are amortized over their estimated useful lives. The useful life of an intangible asset is the period over which the asset is expected to contribute directly or indirectly to future cash flows. The Company periodically evaluates both finite and indefinite lived intangible assets for impairment upon occurrence of events or changes in circumstances that indicate the carrying amount of intangible assets may not be recoverable.